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Memecoins

What are Memecoins? How Do They Work?

Author

Kayelee Rosales

Tags

Tags Editor's Choice

Reading time

4 mins
Last update

Author

Kayelee Rosales

Tags

Editor's Choice

Category

Memecoins

Reading time

4 mins
Last update

Author

Kayelee Rosales

Tags

Editor's Choice

Reading time

4 mins
Last update


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Key Takeaways

  • Meme coins are high-risk investments with little real-world use case. 
  • The low barrier to entry supplies the market with meme coins, making it hard for anyone to stand out.
  • Anyone can create a meme coin, flooding the market with contenders, most of which fail.

Meme coins are cryptocurrencies inspired by internet jokes and trends. Just like how memes spread fast online, these coins can experience a surge in value due to community hype. However, unlike established cryptocurrencies, most meme coins offer little real-world utility and have questionable long-term value. 

While some, like Dogecoin, have achieved high market caps, investing in meme coins is generally risky. They’re highly volatile and could be outright scams. 

The Original Meme Coin

Dogecoin (DOGE), the pioneer of meme coins, was created in 2013 by software engineers Billy Markus and Jackson Palmer. Inspired by a popular Shiba Inu dog meme, they created DOGE as a parody of Bitcoin.

Dogecoin surprisingly became popular online, with fans acting almost like a dedicated group. This community rose through in 2014 when they crowdfunded the Jamaican bobsled team’s trip to the Winter Olympics. Positive media attention and celebrity endorsements, particularly from Tesla CEO Elon Musk, boosted DOGE. In May 2021, fueled by Musk’s “Dogefather” antics on Saturday Night Live, Dogecoin reached a market cap of $88 billion. However, meme coin fame can be short-lived. Today, Dogecoin sits at a market cap ten times lower than its peak, a reality check for meme coin investors.

Dogecoin, the first famous meme coin featuring a Shiba Inu dog, started a whole new trend. Over 200 copycat coins popped up, hoping to be just as popular.

One example is Shiba Inu (SHIB), which launched in 2020 and aims to take down Dogecoin. It even used a similar Shiba Inu theme. Like Dogecoin, SHIB had a surge, reaching a high value in October 2021. But meme coin fame can be short-lived. This year, many meme coins, including Dogecoin and Shiba Inu, lost a lot of value. Even worse, some smaller meme coins became worthless, and investors abandoned them.

How Do Memecoins Work?

Making a meme coin is simple. Since most cryptocurrencies are built on open-source blockchain tech, creators can just copy an existing coin and change it slightly (think new name, logo). This low barrier to entry flooded the market with over 200 meme coins, all hoping to be the next Dogecoin.

So how do they rise in value? Social media hype. Creators use these platforms to build a community and get people excited. If that community grows strong, the price may follow.

This year’s crypto market crash exposed the weakness of meme coins. Many smaller ones have completely crashed in value, while even established ones like Dogecoin and Shiba Inu have plummeted. 

Should You Invest in Memecoin?

Meme coins are a gamble, not an investment. While a few like Dogecoin and Shiba Inu have seen wild success, most fizzle out, leaving investors with nothing. Here’s why:

  • Easy Creation: Anyone can create a meme coin by copying existing code. This low barrier to entry oversupplies the market with hundreds of contenders.
  • Hype-Driven Growth: Social media inflates meme coin prices, but this excitement rarely translates to long-term value.
  • Unlimited Supply: Unlike Bitcoin, many meme coins have an ever-increasing supply, potentially diluting their value.
  • Crash-Prone: Meme coins lack real-world utility and are vulnerable to market downturns. Dogecoin is down 91% from its peak, while Shiba Inu is down 84%.

Are Memecoins Safe?

Meme coins might seem fun and lighthearted, but investing in them can be a risk. Here’s why:

  • Extreme Volatility: Meme coin prices are volatile—one minute, they’re soaring, the next, they’ve crashed 99% or even vanished entirely.
  • Potential Scams: Anonymous creators can manipulate the market by holding a huge chunk of the coins and then hyping them up before dumping them on unsuspecting investors.
  • Whale Control: Due to their concentrated ownership, a small group of large investors (whales) can easily manipulate the price.
  • Hype Over Substance: Unlike established cryptocurrencies, meme coins often lack real-world value or practical use cases. Their worth relies solely on internet hype, which can fade quickly.

Final Thoughts

While meme coins offer the temptation of quick gains due to internet hype, the final conclusion is: to proceed with caution. These high-risk, low-utility investments often lack real-world utility and are overshadowed by the number of contenders in the market. Their value relies solely on trends and celebrity endorsements, making them prone to crashes. Dogecoin’s success story is a rare exception, with most meme coins leaving investors empty-handed. If you’re looking to invest in crypto, focus on established projects with real-world value rather than chasing the next viral meme coin.